Finally the Contrarian Warning from Small Investors

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They did the same in January 2000 just before the dot.com crash.

For years, individual investors in the US have been a dreary bunch, as stocks soared relentlessly since bottoming out in 2009. But 18 months ago, in February 2016, they finally caught the bug, and now optimism has surged at a record pace. Optimism about the stock market in particular has reached the record highs established during the Dot.com bubble, just before it all fell apart.

The quarterly Wells Fargo/Gallup survey of investors with at least $10,000 in the markets, undertaken in the period between July 28 and August 6 when the Dow Jones Industrial Average was approaching and then exceeded 22,000 (now at 21,798), investor optimism about the stock market did something very special — something it hadn’t done in 17 years:

  • 68% of these investors said they’re optimistic about the stock market’s performance next year.
  • This matches the prior records set in December 1999 and January 2000. Peak optimism occurred two and three months before one of the most epic crashes commenced in March 2000.
  • 25% of the investors said they’re “very optimistic,” an all-time record, besting the prior record of 24% set in the first quarter of this year. This is up from 11% a year ago!

But stock market sentiment is only part of it. The survey gauges investor sentiment about four economic factors: the stock market, economic growth, unemployment, and inflation. It also gauges three factors on personal finances: meeting long-term investment goals, meeting short-term investment goals, and maintaining income.

This optimism has spread across various factors:

  • 61% said now is a good time to buy stocks, up from 53% two years ago. Of them, 47% cited as the main reason that the market will continue to rise.
  • 17% see downward volatility in the stock market as a buying opportunity.
  • But there were still a few worrywarts left: Only 37% do not think that now is a good time to buy stocks. Just over half of them, so only 19% of all respondents, after an eight-year stock market boom, cited a market correction as a reason for their reluctance to buy, buy, buy.

Driven by this “new surge of optimism,” as Gallup put it, the overall index of investor optimism jumped to 138, the highest since September 2000, during the dead-cat bounce of the index as the dot.com crash was already in full swing.




This chart by Gallup shows the 20 years of the index. The current optimism exceeds by a good margin the optimism during the pre-Financial Crisis housing and stock market boom and is only outdone by the peaks of the dot.com bubble (red marks added, click to enlarge):

Note that during the dot.com bust, which commenced in March 2000, investor optimism remained high throughout the year, even as stocks were falling off a cliff. By August 2002, the Nasdaq had plunged 78% from its peak and started rising again.

The current lofty level of the index, at 138, is up from 124 in the second quarter. Since February 2016, the overall index has soared 98 points, “the largest increase in the 20-year history of the index that is not a rebound immediately after a major drop in optimism.”

As an aside, the current silver price and gold price indicate that there’s at least one asset class for which investors still lack any sort of enthusiasm.

Retired investors are on cloud nine. For them, the optimism index hit 158 – while optimism for non-retires is also high, but lagging woefully behind, at 130.

As the market has surged recently, “retiree investors have grown more optimistic about meeting their financial goals,” Gallup said. “With the financial status of retirees becoming more and more important as baby boomers flood the retirement rolls, the growing confidence of retiree investors provides a welcome piece of evidence about their financial well-being.”

Just in the nick of time. Gallup points out that “investors have been slow to shed their skepticism about stocks as a good investment.” But this has now finally changed:

This year’s continued climb of the market to record-setting heights, however, has given investors enough evidence that more than two-thirds are optimistic and one-fourth are now very optimistic about its near-term performance.

This is what everyone has been waiting for: Retail investors becoming super-optimistic about stocks. In 1999 and early 2000, high enthusiasm for stocks was a powerful sign that the stock market bubble was on its last legs. Of course, no one can say how much higher their enthusiasm will surge this time around. During the dot.com bubble, the index hit 178 for a moment before the market came unglued, at a horrendous expense to those very same investors. But the current level of the index has already left the optimism before the Financial Crisis in the dust.

Hype works, until it doesn’t. Read…  Global Stock Prices Fueled by Ugly Earnings




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  99 comments for “Finally the Contrarian Warning from Small Investors

  1. Sep 10, 2017 at 6:22 pm

    Everyone in? Let’s get one more high, then. Who’s got 2509 on the S&P 500?

    • Joan of Arc
      Sep 10, 2017 at 9:50 pm

      Can someone please address the difference between the chart offered here in this article and the sentiment shown in the American Association of Individual Investors (AAII) surveys showing long running pessimism. Investors Intelligence Advisors Sentiment readings also show bullish sentiment in agreement with the sentiment offered in this article. Are the AAII surveys somehow out of touch with reality?

      • Ian
        Sep 11, 2017 at 9:43 am

        I, too, would like this contradiction addressed since they are at odds with each other.

        The AAII survey can be found here:
        http://www.aaii.com/sentimentsurvey

        • Ambrose Bierce
          Sep 11, 2017 at 11:02 am

          Gallup runs a boutique polling operation. I have seen this time and again, and sometimes they nail it, which is better than taking a middle number to protect your credibility.

        • Sep 11, 2017 at 11:11 am

          AAII’s survey is weekly, and it jumps up and down on a weekly basis, depending on the wind or something.

          The survey in the article – in terms of stocks – asks about market performance “next year.” But it includes six other factors as well.

          These are two very different time frames, sort of like short-term trading v. invest-and-forget.

      • Smingles
        Sep 11, 2017 at 10:57 am

        The AAII measures short-term outlook for the stock market. I think it’s six months.

        The Wells/Gallup, per Wolf “gauges investor sentiment about four economic factors: the stock market, economic growth, unemployment, and inflation. It also gauges three factors on personal finances: meeting long-term investment goals, meeting short-term investment goals, and maintaining income.”

        They don’t seem to be all that comparable.

  2. Sep 10, 2017 at 7:10 pm

    Well, this time is different ;-) (sarc)

  3. truth always
    Sep 10, 2017 at 7:20 pm

    This time its different?

    Really it is – where was QE in 2000 ?

    • Gary
      Sep 10, 2017 at 10:26 pm

      Great point. From what I understand, the Fed did do QE in 2000, due to fear of Y2K (remember that?).

      But that was a tiny tiny fraction compared to what we have today. So, yes I think you’re right. I wouldn’t try shorting anything since we have Galaxy-sized QE right now.

      • nick kelly
        Sep 11, 2017 at 5:46 pm

        You’d HAD QE. The bond purchases are being unwound on a clearly
        announced schedule. Interest rates are probably going up but on this score the Fed still yacks about data dependent i.e., ‘we’ll see’

        But re: QE, contrary to the popular belief that the Fed ‘lies’ (and schemes to serve the Illuminati etc.) it has never said it will do something on a specific date and not done it. This is the reason for so much Fed double- talk, to keep options open.

        The Fed knows its credibility has been called into question by just about everyone, but when the IMF piled on, it must have stung.

        It is not just ending QE, but is also stating exactly on what date and by how much the stimulus will be unwound.

        What we have now is the high water mark in all asset classes driven by a tsunami of credit that is now receding.

        There is WAY more froth in the markets than in 2008.

  4. Ed S.
    Sep 10, 2017 at 8:10 pm

    Wolf,

    Like many of your readers and commenters, I lived thorough the dot com bubble. And what a bubble it was! Here’s some of what I remember: tv’s in restaurants tuned to CNBC. Stock analysts as the new rock stars. The Beardstown Ladies. Calculating that a share of Cisco increased 77x in value in 8 years. And my own, personal “Joe Kennedy and the Shoeshine Boy” moment: on Michigan Ave in August 1998, eavesdropping on two 30 something women when once says, “You have to invest in the market. It will NEVER GO DOWN.”

    So I’ll be the contrarian to the contrarians here — I’m not seeing the blind enthusiasm of 1996/7 let alone 1999/2000. Yes, the market is up. Earnings are sketchy. Investors are enthusiastic. But GOOG is up 25% YTD, not 200%. FB is up 40%, not 400%. Wake me when it’s parabolic.

    • Sep 10, 2017 at 8:42 pm

      You’re comparing the giants today to the Doubleclicks of that era. It would be better to compare GOOG today to MSFT at the time.

      • IdahoPotato
        Sep 10, 2017 at 9:15 pm

        But where are the ones like Webvan, Flooz? Pet.com? Etoys? Other than SNAP, I don’t see any.

        It is harder to find companies with solid revenue and earnings growth.
        This is a crazy bull market, but a hated one. Everyone in it has an eye on the exit. Not quite the “euphoria” of 1999.

        • ChrisM
          Sep 10, 2017 at 9:45 pm

          The Webvans exist, they just haven’t gone public yet. And look at companies like Theranos. And big funds are now writing down there investments in companies like Uber. It is not pets.com crazy, but then the same start-up craziness didn’t exist in 2008 either. It is always a different market or asset class that pops the next bubble.

        • Mark
          Sep 10, 2017 at 11:11 pm

          Idaho,

          They’re called Bitcoin, Etherium, and Litecoin. FANG stocks are priced for absolute perfection, and we’ve seen the US 10 year yield down to 1.3% with junk spreads very tight to that.

          The world is drowning in liquidity and speculative excess – you just need to open your eyes to it.

        • Spanky Bernanke
          Sep 11, 2017 at 12:55 am

          We had a real economy then. We had cheap energy and interest that helped fund the equity market. WTF do we have now???? Janet Yellen mumbling and stumbling out of all sides of her mouth. We have ridiculously fake GDP statistics and highly covert actions from government entities. We have the dollar hegemony fading. But, we STILL have Jim Cramer ranting nonsense. This bubble is FAR worse than the 2 prior. Even more stupid–how many more share dilutions you think we can get out DryShips???? Tell me the Fed isn’t involved in that ignorance…..only a desperate soul would assist that failure.

        • nick kelly
          Sep 11, 2017 at 11:19 pm

          Tesla? Amazon?
          Everyone knows the first ‘short’ story re: Tesla

          Amazon’s PE makes no sense. It’s a warehouse and trucking company with a PE of a tech that can be scaled with no great effort. To do double the amount of warehouse and trucking you need to double your costs. It’s not like it can sell software or ads on- line at negligible extra cost.
          It delivers billions to make millions, a wafer- thin profit.

          The dot.com hype of 2000 was pretty much defined by internet stocks.
          The mania now is everywhere.

          To quote Marc Faber: ‘All asset classes are overvalued’

          Unless you adopt the unfashionable view that cash is an asset.

      • TJ Martin
        Sep 11, 2017 at 8:41 am

        Oh come now Wolf ! Seriously ? Sorry but vaporware is vaporware no matter how many ways you chose to define it . And the Big G giant or not is just that . Vaporware . Producing nothing . Contributing nothing . And if put up for sale tomorrow what few salable assists it has would go for pennies on the dollar .. assuming anyone wanted over glorified 1950’s design mega bucks campuses etc . So toss my contrarian in the mix as well .

        To paraphrase the Good Book … there’s a time to invest .. and a time to take your money and run … this most definitely being the latter as vaporware overwhelms what is a Potemkin Village market place displacing businesses of substance all while [ decent to good ] paying jobs continue to disappear and the general economy falls into the abyss

        BTW ; Has the Big G ( know in my household as the BORG ) yet to of shown a genuine profit after all its P&L’s have been tallied ? From what I’m reading the answer seems to be a definitive … no !

        • Sep 11, 2017 at 11:08 am

          This was a question about company size, not product. To compare giant (GOOG) to giant (MSFT), rather than giants to tiny dotcom outfits like Doubleclick (which Google ended up swallowing after the collapse for about $2.)

          BTW, Google doesn’t make “vaporware.” It has placed itself near the core of the Internet and exerts enormous monopolistic power, which I have recently felt myself when it censored WOLF STREET by threatening to remove its ads from it if I didn’t remove some content it didn’t like. And I removed the content (a few lines). Its “do no evil” mantra from the bygone days was always BS.

        • JZ
          Sep 11, 2017 at 12:12 pm

          Do .GOV produce any thing?
          Let everybody produce contents, facebook gets the ad fees.
          Let AT&T and Verizon take on debt and built internet and yet search AD fees go to google.
          Let people borrow money to buy cars and phones and drive, UBER gets the cut.
          Let brick and mortar make the show room and please buy at Amazon.
          Let everybody work and .GOV tax paul to give to joe, and during the transaction, they can racketeer and take bribes from lobbying entities.

          To call these vapor ware because they do NOT produce anything tangible is like to call kings and queens lazy bastards. They do not produce real stuff but they own our ass.
          Their business is about control other people’s assets and labor. Their business is NOT to produce by themselves.

        • alex in san jose
          Sep 11, 2017 at 6:28 pm

          Wolf – It’s well to not have interests/hobbies/etc that Google doesn’t approve of. All too often, I can only find websites by Googling for them, and I always think: What if Google doesn’t approve of what I’m interested in? There’s talk that the Worldwide Socialist website is blocked in this way. (I think the URL is http://www.wsws.org but the complaint is it doesn’t show up in Google searches.)

          In my case my interests are fairly mainstream, if a bit Left, so Google gives me the OK to find the stuff I look far, as far as I can tell.

    • Gershon
      Sep 10, 2017 at 9:04 pm

      Since the 1990s the physical economy – as distinct from Wall Street’s speculative casino – has been systematically pillaged and asset-stripped by the oligarchy. Not surprisingly, something like 80% of the volume on these rigged, broken, manipulated markets are high-frequency algos buying and selling to each other. As the middle class becomes more pauperized and sees its purchasing power debased by the Fed’s deranged money printing and the inflation the Fed purports not to see, they are too busy paying bills to speculate in the market. The main driver for these ludicrous stock valuations has been corporate buybacks using borrowed money (which used to be illegal), with valuations completely divorced from any underlying fundamentals.

      When and how will the Ponzi end? God only knows. The correlation between central bank balance sheets and “the markets” is close to 100%. As long as the fraudsters at the Fed and central banks keep buying stocks and bonds, the Ponzi will keep levitating. But at some point true price discovery is going to asset itself, and that will be cataclysmic for the central bankers debt-fueled asset bubbles. When the whole house of cards comes tumbling down, millions will be wiped out, but the fraudsters running our central banks for the exclusive benefit of their oligarch patrons might finally be arrested and hauled in front of an honest judge as a long-overdue first step toward ending the Fed and restoring sound money and honest markets.

    • ChrisM
      Sep 10, 2017 at 9:31 pm

      My response to this question is that back in 2000, it was the first bubble and people were not up-to-speed on market drops. Remember consulting for a VC funded company when told by their founders that they could always raise more money. That was February, 2000. Now that we lived through 3 bubbles, serious investors are more on their toes about the potential sharp downturn and private equity investors are more sensitive to valuations (in some cases, though 2000 valuations can be found today with a number of unicorns). This is the only time in history where you have seen 3 extreme bubbles in such a short time period.

      If you look at crypto markets, people are making the same comments as your shoe shine guy. And look at the Australian and Canadian real estate markets, where valuations are through the roof. And then you have China, where there are trillions of yuan invested in non-productive assets. The last two bubbles were popped in the US, the next bubble will be popped from an overseas market that will then cascade into the US market.

      • Joan of Arc
        Sep 10, 2017 at 9:54 pm

        Are you saying that it will be different this time?

      • ASquared
        Sep 10, 2017 at 10:42 pm

        First bubble?

        • marty
          Sep 12, 2017 at 1:45 am

          Clearly ChrisM is younger than we are and/or probably hasn’t cracked a history book. ;-)

          Hey Chris, try Popular Delusions and the Madness of Crowds.

        • Sep 12, 2017 at 1:55 pm

          He just meant first bubble in the series, and the first in living memory for most people… the last stock bubble having been about 30 years before (late 1960s Go-Go Years, going into the 1970s market doldrums).

    • RangerOne
      Sep 11, 2017 at 10:08 am

      If you look at tesla or amazon stock over the last 6 years the rise has been at least 20x. Even look at Apple from 2000 until now, that has been a 167x rise over 17 years. There stocks were a few dollars pre ipod. Now they are $167. If we want to talk blind enthusiasm check and see how many people have whole investments accounts holding purely FAANG stocks. I have a coworker who has his kids 529 invested in Apple.

      And apple isn’t being nearly as silly as whatever the he’ll Amazon is doing to keep a $1k share price…

      I think the enthusiasm is blind today as well. Not many people are worried about a tech bubble, but the growth of every successful tech company has been fairly stupid in the past 5 years. And no one seems to be considering the things that might trigger a correction or crash.

    • Nick
      Sep 11, 2017 at 4:27 pm

      LOL and our country is in how many more trillions of debt? How much more take home pay are average Americans getting? The problem with the FIRE economy is thanks to the FED printing to the moon they think their organizations exist in a vaccuum. To have a healthy robust middle class you have to basically have what many term the “Henry Ford” economy where people truly make enough to buy the tangible products including healthcare and college (they are basically products) produced.

      The fact that we as modern industrialized humans have accepted a debt based economy is insanity. The saddest part is we are all so brainwashed that we believe it’s other than a conspiracy cooked up in 1913 to literally enslave us and usher in a certsin level of NWO hegemony. But only tinfoil hat wearing fat guys eating ice cream in mom’s basement would believe that nonsense. Just like injecting cancer causing viruses, human proteins, and chemical adjuvants directly into the bloodstream of our babies and children is such a great idea!

  5. Ozymandias
    Sep 10, 2017 at 9:03 pm

    In general ‘consumer sentiment’ indicators of any kind are worthless. They typically use small sample sizes (500-1000 people) to extrapolate to nation wide trends.

    The broad market rally we’ve seen over the last several years has not been, has never been and is not a rally fueled by the small investor.

    Cheap money, high leverage and foreign inflows have allowed large investors to push the markets higher. Machines are in control of these moves, not people.

    Having witnessed both bubbles I’d say that beyond the gross technicals this market is nothing like the former 2000 dot com era.

    There was still fear in the market even between 1998-2000 (you can note the VIX was over twenty and there were frequent spikes. People still ruled the trading pits and yes, we would banter about stocks at the water cooler. The smaller investor played a larger role. ) You could get over 5% on a 1 year CD in 1998 so investors had alternatives and leverage was less of a factor. The NASDAQ and NYSE stocks were each their own universe with few cross listings back then.

    Oh, the good old days!

    Today’s markets mechanically grind higher pulled mercilessly
    forward by the plodding oxen known as FANGS. Computers grasp the electronic tails of the computer higher up on the profit slope.

    Small investor sentiment about a market they are not invested in is dubious. It’s like forecasting the outcome of the Superbowl based on ‘fan sentiment’.

    • Dave P
      Sep 11, 2017 at 6:25 am

      Well reasoned comment. I wonder how long these forces can continue to push higher stocks higher?

      • JZ
        Sep 11, 2017 at 1:54 pm

        Until your and my money is in.
        This market is NO longer a CON, people have learnt it. This is by force now, if we do not hold the bag, they will keep printing until we hold the bag and they hold cash, and then drop.

    • walter map
      Sep 11, 2017 at 1:39 pm

      ” It’s like forecasting the outcome of the Superbowl based on ‘fan sentiment’.”

      Not a good analogy. NFL post-season games have been routinely rigged for years to favor the best markets. There can be no other explanation for many glaring irregularities in many important games. Legally, US pro football is not a sport, as the courts have ruled that it is a staged presentation, like a Broadway play or a political election. Horse racing, cycling, and certain Olympic sports are even more notorious.

      The judicious observer is fully aware that God plays favorites, the NFL plays favorites, and the Fed plays favorites, all for the same reasons: there is too much money in it to leave it to chance.

      The only function of the economy and the financial industry is to enrich the wealthy. The purpose of market meltdowns is to consolidate wealth upwards. It has been so for the last two hundred years. While it is true that they sometimes trip over themselves in their reckless headlong pursuit of greed, you will notice that in any downturn the richest always come out on top. They wouldn’t have it any other way.

  6. Rates
    Sep 10, 2017 at 10:02 pm

    QE, Corporate buyback, Central Banks buying stocks.

    No way they’ll allow this thing to pop.

    • ru81
      Sep 11, 2017 at 12:49 pm

      Exactly….all assets seems to be going up.

      One would think with the money flowing into Crypto currencies it would have to come from somewhere else. But all assets seem to be rising.

      Stock markets, homes, crypto currencies. etc

      Where else can you put your money these days since ZIRP does not give you any type of return to live on if you invest in bonds.

      It is getting hard to buy a house as a rental investment property. You have to be a flipper to make any money or hope for price appreciation.

      • Nick
        Sep 11, 2017 at 4:35 pm

        Good!! Im so sick of everything in our stupid country becoming a racket in order to make a buck. We have financializedevery aspect of our society…..healthcare, housing, college. At no point in the history of our country have the big life milestones ever cost so much and ever increasingly been used as a wealth building vehicle.

        I hope once the selfish, self absorbed, anti-free market boomers start dying off younger generations will be smarter with the way they structure an economy and what becomes legal and illegal. The velocity of credit and debt is killing their future potential to be able to afford a third of whaf their parents and grandparents did.

        • alex in san jose
          Sep 11, 2017 at 6:30 pm

          Nick – How dare you impugn Capitalism. Capitalism is best ism.

  7. raxadian
    Sep 10, 2017 at 10:10 pm

    London Bridge is falling down,
    Falling down, falling down.
    London Bridge is falling down,
    My fair lady

    So the crash is coming this year, is gonna be a “Sweet Cristmas” indeed.

    • gary
      Sep 11, 2017 at 9:21 am

      Is the Queen ill?

      • alex in san jose
        Sep 11, 2017 at 6:32 pm

        Hold it up with pins and needles
        Pins and needles
        Pins and needles
        Hold it up with pins and needles
        My fair lady.

        Little kid time, holding hands and dancing around in a circle.

  8. GSH
    Sep 10, 2017 at 10:17 pm

    It will be interesting to see the effect of the Fed trimming its $4.5T balance sheet which is supposed to start any time now. But with the debt limit temporarily gone, a few tens of billions of additional treasuries issued will be hardly noticeable.

    • Gershon
      Sep 10, 2017 at 11:43 pm

      Emma Stone and Jennifer Lawrence will show up on my front porch and fight for the privilege of bearing my love child and signing over their fortunes to me before the Fed starts trimming its $4.5T balance sheet.

      This is more dissembling from the Fed as Yellen, et al. try to masquerade as responsible central bank instead of a larcenous private banking cartel.

      • Sep 10, 2017 at 11:57 pm

        Gershon,

        You’re closing your eyes because you don’t want to see. So you will be one of the few out there to be surprised when the QE unwind begins this year. Just as much as you were surprised by each and every one of the past three rate hikes. And just as much as you will be surprised by the next rate hikes.

        It gets tiring to keep reading your constant confirmations umpteen times a day that you have your eyes firmly closed because you don’t WANT to see.

        • James Levy
          Sep 11, 2017 at 6:21 am

          Wolf, in the broader picture, might the US Fed being coordinating its unwinding with increased purchases by other central banks in order to say they are unwinding while making sure the net effect on stock and bond markets is zero? Might this just be a shuffling of paper between entities and not a reversal of policy?

        • Sep 11, 2017 at 8:19 am

          The big ones are cutting back. The ECB has already cut back back QE by €20 billion/month earlier this year. It’s going to announce further cutbacks. The Bank of Japan has a long-term rate target (10-year near but above zero) and doesn’t need to buy as much to maintain it, and it has cut back too.

          That said, the SNB is buying US stocks because it can — as long as a strong CHF allows it to do it. The PBOC is trying to keep a financial crisis at bay, and it will do whatever it takes. But it’s not systematically doing QE.

        • Gershon
          Sep 11, 2017 at 6:57 am

          Wolf,

          I hope I’m proven wrong about the Fed – I have an extremely low opinion of central banks and the people running them. But your point is taken – I will henceforth refrain from reiterating my distrust and disdain for the Fed “umpteen times a day.” Time will tell what the Fed does or doesn’t do.

        • Sep 11, 2017 at 8:02 am

          Thanks. As you know, I’m no fan of central banks and their goals and loyalties. And I’m with you on many points. But I think it’s important do try to understand what they might do next.

        • Smingles
          Sep 11, 2017 at 11:23 am

          The futures market is currently not pricing in another rate hike until at least Summer 2018.

          My personal opinion is that they would like to hike and unwind, but want to do so in a way that doesn’t spook the markets. I just don’t think that’s possible. Rock and a hard place.

          I’ve been saying it for over a year here. Every time a Gundlach, Greenspan, or Gross comes out saying rates are going higher… they’ve been wrong. The bond market is rarely wrong, and it points to lower rates. Unless inflation and/or economic growth starts blowing expectations out of the water… there’s no other way to go.

          IF the Fed raises rates and tapers QE, it will only be a temporary reprieve until the next crisis hits and rates potentially go negative.

        • Sep 11, 2017 at 11:54 am

          The earliest rate hike according to the Fed’s meeting schedule would be at the December meeting (the September meeting will likely kick off the QE unwind). So there are about 3 months left to go. For the futures markets, this is a long time – and they’ll move up and down during that time.

          There is plenty of discussion/disagreement at the Fed right now on when to hike. Vice chair Stanley Fischer is leaving in Oct (no replacement has been named yet), and this throws more uncertainty into the mix. So at this point, predicting anything is a tough call. With exception of a couple of Fed heads, there is an agreement to continue with the “gradual” rate hikes. Whether this means in December or later is something we’ll follow closely. Right now, visibility is lousy, but it’ll get better in November.

        • walter map
          Sep 11, 2017 at 1:49 pm

          The Fed will unwind QE because it is in the interest of the Financial Industrial Complex for them to do so. The markets are too precarious the way they are, and doing so is expected to solidify the gains of their constituencies.

          Despite the unwind, the financial markets are unlikely to accurately reflect the state of the underlying economy for the foreseeable future, if ever. That disconnect may be permanent.

      • Willy2
        Sep 12, 2017 at 1:06 am

        @Gershon:

        – Then I would start to prepare youself for Mrs. Lawrence coming to your house, because the FED is serious when it comes to reducing the size of their balance sheet.
        – The FED is NOT a “private banking cartel”. This is a based on a number of false assumptions. One of these assumptions is that banks are dependent on money from the FED. And they’re NOT.
        – If the banks (JP Morgan, Citibank, BofA, ….. ) want to create loans to the tune of $ 10 trillion each month then they can do that without one $ 1 from the central bank.

        • d
          Sep 12, 2017 at 1:43 am

          “want to create loans to the tune of $ 10 trillion each month then they can do that without one $ 1 from the central bank.”

          Thye can create a lot of loans. QWithout any Fed fund’s

          They do not have the asset backing for those sorts of numbers even JPM is subject to workable leverage ratios.

  9. Gershon
    Sep 10, 2017 at 11:37 pm

    David Brown think’s it’s “strange” that the Fed and central banks are leading us into the next global financial crisis. No, Mr. Brown, it’s not strange at all – it’s what these fraudsters do. Engineered boom/bust cycles every eight years or so are the most efficient means of transferring the wealth and assets of the middle and working classes to the Fed’s oligarch cohorts.

    http://www.scmp.com/business/banking-finance/article/2110589/inflation-not-down-and-out-shifting-global-financial-bubble

  10. polecat
    Sep 10, 2017 at 11:49 pm

    “Gentlemen .. uh .. women .. uh .. whatever …. we appear to be on a permanently high inverted pyramid !”

  11. Realist
    Sep 11, 2017 at 12:43 am

    There is a big difference now compared to the dotcombubble. I did pay my learning dues during the big crash at the turn between the 80s and 90s and I did apply what I did learn then during the dotcombubble. I invested in well managed non sexy traditional industry and other such companies for half free since everyhting not dotcom was so out of fashion. The game now is that everything is way overpriced.

    • william
      Sep 11, 2017 at 9:38 am

      The non sexy traditional industries are going to get blindsided by major swings in consumer behavior as Millennials overtake Boomers as this biggest spenders. On the way out is multiple sure things of the past: breakfast cereal, beer, motorcycles, home ownership, national chain restaurants, etc. etc.

    • fajensen
      Sep 11, 2017 at 2:03 pm

      What I learned was two things –

      Don’t overthink stuff: When there is a solid trend, a “Next Thing” it doesn’t really matter how stupid, ridiculous, illogical or retarded the thinking behind it is, everyone will be piling into the story and driving this “to the moon” (Of Course in 2005 it is only reasonable that the stock value of CISCO in 2010 will be bigger that the entire US GDP …. Because …. whatever… whatever …. don’t think, just BUY IT).

      Forget the nice boat and Pay the damn mortgage first! Those easy money should be invested in something safe, because the music *will* stop! The safest ever investment is paying off debts, takes the screws off ones mind too in the sense that one does not have to compromise at work and such because one does not really need their damn job (the funny thing is that one gets a lot more respect and therefore better jobs once the “news” gets around).

      It really sucked losing 60% during the 2008 crash and still have the stupid mortgage left … this time round at least I did much better.

  12. Richard
    Sep 11, 2017 at 12:56 am

    What is the one thing which nobody dares address? The one thing that is totally out-of-bounds for seemly conversation? The one thing which is the only thing that can stop this madness and which is all-but-certain in my book.

    A nuclear exchange between the big powers. We are almost as close as we ever were during the Cold War.

    It’s all over, folks. The world cannot overcome the madness and mindless arrogance of U.S. politicians. How long do we have? Who the hell knows? No that long, I think.

    • Frederick
      Sep 11, 2017 at 2:04 am

      Hopefully the first bomb hits John McCain

      • IdahoPotato
        Sep 11, 2017 at 10:36 am

        Huh? I’m not a McCain fan, but what did he do to you?

    • gert7to3
      Sep 13, 2017 at 8:53 pm

      I think that North Korea has joined the atomic bomb club. Until this fact is acknowledged and accepted by the powers that be, they will be causing trouble. No way will N. Korea give up its nukes for a lifting of sanctions. This is what happens when you call countries names such as the “axis of evil”, then stupidly invade one of them. The other two will go atomic, or should I say “nuculer”.

  13. George
    Sep 11, 2017 at 2:07 am

    Why do people never seem to learn from prior bubbles? Because every bubble possesses idiosyncratic characteristics. Investors then point to these idiosyncrasies to justify ignoring valuations, which gives rise to the universal refrain in all bubbles, “It’s different this time!”

    If you want to avoid being a bagholder, focus on the central characteristic of all bubbles: overvaluation. It is that simple.

    In my opinion, the defining characteristic of this bubble is the ubiquitous adoption of total return investing through the use of ETFs. And any student of the market knows how crowded trades always end. In the immortal words of Benjamin Graham, “That way lies sorrow.”

    (For those who think it is QE and interest rate policies, I suggest a careful study of the 1930’s and 1950’s. For a ground level view of the 1930’s, I recommend “The Great Depression: A Diary” by Roth and Ledbetter)

    • Cynic
      Sep 11, 2017 at 8:06 am

      Why do people not learn?

      Because everyone likes the idea of ‘putting one grain of rice into the pot, but taking out a ladleful’.

      One’s dog never says: ‘Stop! no more in my bowl, I haven’t earned that much!’

    • RangerOne
      Sep 11, 2017 at 10:18 am

      This is the first bubble where I have watched the conversation explaining how we are not in a bubble. Even though I worked though the housing crash. The dotcom bubble happened while I was in middle school so that didn’t even register.

      It would seem the major investment interests always have a set of fundamentals they focus on to explain how rising values are to be expected and normal.

      Few seem to willing to focus on the catalysts that are essentially a rug waiting to be pulled out from uner investors.

      Today’s rug seems to be low interest rates and cheap fed lending. No one trying to say that rising home values and stock prices are all grounded in good fundamentals even bothers to talk about that elephant in the room.

    • fajensen
      Sep 11, 2017 at 2:09 pm

      There is no point in learning, the bubbles will bubble and if one stays out of it one will not make money on it. When it pops everyone loses, even those puritans and good-thinkers who didn’t participate in the orgy :).

      • JZ
        Sep 11, 2017 at 6:34 pm

        This is the corrupted citizen thinking.
        Heads i win, take i will bring down everybody.
        Exact thinking of wall street, at a personal level.
        Previously before 08, i thought it was the wall street shading mass. Now I think it is the mass against the mass itself and all wall street need is a little push, and the mass will try to transfer each other’s wealth.

  14. Álvaro
    Sep 11, 2017 at 2:36 am

    Wolf, take a look at the “Bloomberg Startup Barometer”, please.

  15. justme
    Sep 11, 2017 at 5:57 am

    As long as rates remain low the share buybacks will continue. In which we’ll be left with only one share of AAPL, FB, etc outstanding, and this one share will be bid to infinity.

    • Smingles
      Sep 11, 2017 at 11:31 am

      “As long as rates remain low the share buybacks will continue.”

      Buybacks peaked in 2014. They’re down quite a bit from the peak, although they do continue. Higher rates are one reason, but overvaluation is another.

    • ru82
      Sep 11, 2017 at 1:54 pm

      You are exactly right. The amount of money that can be used for investments grows every year. Just look at a chart of the M1 supply.

      https://fred.stlouisfed.org/graph/fredgraph.png?id=M1NS&nsh=1

      But you have less and less supply of stocks and companies. The Wilshire 5000 index created in 1974 only has 3500ish stocks in it. This is because of M&A…etc. The big companies are becoming conglomerates. Add in the fact because of share buybacks you have more money chasing few shares of stocks.

      Even if share buybacks slow down you may still have Mergers and there seems to be no interest in stopping the growth of monopolies or oligopolies (because of lobbying groups controls congress).. Just look at AmBev. When you go buy beer in a liquor store they own up to 85% of the market share and brands in the store. When I see someone drinking a Budweiser, Coors, or Miller brand beer I will ask them when did they start drinking import beer. LOL They will say “what”, and will say those or foreign owned beers.

      • alex in san jose
        Sep 11, 2017 at 6:36 pm

        I drink PBR or Hamm’s for a cheap beer. Sometimes you just want something cold and wet.

        Other times I drink a local IPA; a guy bought me one yesterday just because I told some good Army stories. I forget the name but it was a Bay Area brew of some sort.

        I like a big cold (blue can) Foster’s from time to time too and I don’t know who owns that brewery these days.

    • Justme
      Sep 11, 2017 at 3:50 pm

      That’s NOT me posting under moniker (lowercase) “justme”. I am (uppercase) “Justme” on this blog. Although the post was humorous, please stop imitating me.

    • Sep 11, 2017 at 4:45 pm

      justme, with lower-case j,

      Please modify your alias. There is someone who has been posting here for a long time as “Justme” (capital J). This gets very confusing for readers. Thanks.

  16. breamrod
    Sep 11, 2017 at 8:43 am

    you know I think folks should remember that its a market of stocks and not a “stock Market” per say. The day that the Nasdaq topped in march of 2000 the railroad stocks bottomed. look it up!

    • william
      Sep 11, 2017 at 9:44 am

      There were many nuances like that. In 1999, more stocks went down than up, for example. Stock indexes are just winners list and constantly changing components. Also, back then, you could place 100% of your 401K funds in your company’s stock, which often the CEOs would recommend. Pension cash-outs could get rolled into the stock market. Many employees had half their income from stock options and would plan to cover thirty years of mortgage payments with that income, as well.

  17. Bobber
    Sep 11, 2017 at 9:12 am

    People think it can go on forever, but there are aspects of this bubble that cannot be sustained. The key problem problems are a growing public debt that cannot be repaid, social security that cannot be paid, pensions that cannot be paid, etc.

    These are long term in nature, so the timing is not certain.

    It’s like a train that is moving towards you. It won’t matter whether you see it or not. Right now, people hear the train but they are jumping on and off the tracks in giddy fashion, like young teenagers. This is all that market sentiment tracks. At some point, the tracks will clear. Anybody who built a house or parked their car on those tracks will get demolished.

    • Mark
      Sep 11, 2017 at 12:06 pm

      I really like Carl Icahn’s description of buying a high yield bond (aka junk bond) ETF as getting on a party bus that’s heading toward a cliff.

      Everyone on the bus is drunk on yield and having a great time, and yelling at other people to hop on too. Janet Yellen is of course in the driver’s seat, and anytime some sober person sees the cliff ahead and asks her to slow down, the drunks in the back shout him down, “hey – don’t touch those brakes – this is a great party!” Eventually the bus goes over the cliff…

  18. Petunia
    Sep 11, 2017 at 9:53 am

    Serta is my pick for the next PE held firm to go bust. I unfortunately bought an office chair from them, commercial quality supposedly. The chair failed in just 9 months, the back frame broke, the piston broke, the base broke, the arms fell apart. The company replaced all these parts little by little and I still have a defective chair. Now with all the new parts it is crooked. No one in management is available to discuss this with me.

    Hopefully, Advent the PE firm that owns them might be able to get me in touch with management. Let’s see how long it takes to see Serta on the retail bankruptcy list.

    • Carlada
      Sep 11, 2017 at 10:48 am

      My Serta bed is and has been garbage since Day 1. Total junk.

      • Petunia
        Sep 11, 2017 at 12:54 pm

        Call Advent in NYC, 212-813-8300, and complain. They own Serta.

    • Mike G
      Sep 11, 2017 at 12:25 pm

      I try to avoid purchasing durable goods from firms that have been bought by PE owners. Absolute garbage-greedy corporate cultures, cheapening-out on parts and design, no integrity at all.

      • Petunia
        Sep 11, 2017 at 12:50 pm

        Now I have to check both country of origin and ownership before I buy an item. I’m running out of places to shop and I don’t even have any money.

        • d
          Sep 11, 2017 at 2:28 pm

          Welcome to the new normal.

          Quality never goes out of style, but is frequently driven out of business, by mass junk producer nations.

    • Joan of Arc
      Sep 11, 2017 at 10:01 pm

      I bought a $17,000 bed. It was the worst sleep I ever had. Now I sleep on a foam rubber mattress on the floor right beside my $17,000 bed. I will keep sleeping beside it over the next 30 years to get my money’s worth out of it. That’s only $566 per year that it will cost me.

  19. Buddy Eldorado
    Sep 11, 2017 at 10:44 am

    I am reminded that at the racetrack 80% of the money is bet by 20% of the people. Ask Joe BBQ is he worried about the stock market, he says no, “I am not in the market,” which you know is one of the great fallacies of the moment.
    While the odds on the possible payout get lower, only more highly capitalized players take interest. The $2 punter cannot afford to waste their funds betting chalk. The Russell is running about 5% lower YTD than the SnP, but still up 5%, which only underlines the premium the 20% put on diminishing returns. In short the psychology of the 20% is that at 3/5 they have to bet more to get the same return they get at even money.

  20. Old Farmer
    Sep 11, 2017 at 10:47 am

    I’m skeptical of the term ‘investors.’ Are these not really ‘speculators?’

    • Matt P
      Sep 11, 2017 at 1:03 pm

      Yes they are. It should be called the stock casino, not market.

    • Joan of Arc
      Sep 11, 2017 at 9:49 pm

      The only difference is that investors think they are smart and speculators think they are smarter.

  21. Konmaengmoom
    Sep 11, 2017 at 5:36 pm

    E-trade commercial: “the dumbest guy from high school bought a boat”

    how ironic. trying to lure the dumb money in by inferring they are dumb for not imitating their dumb ex-classmate.

  22. Gershon
    Sep 11, 2017 at 8:39 pm

    $20 trillion in debt and a AAA credit rating. Seems legit to me.

    http://www.marketwatch.com/story/heres-how-the-us-got-to-20-trillion-in-debt-2017-03-30

  23. George W
    Sep 11, 2017 at 8:59 pm

    The biggest bubble yet, may be the one that never materializes…

    The market has taught us well. Buy the dip is for amateurs… Real investors buy the crash!

    The Nikkei has never recovered yet everyone knows, the real money will be made in the next big crash!

    • Joan of Arc
      Sep 11, 2017 at 9:51 pm

      Making money in a crash sounds good, but is harder to do than making money in a bull market.

  24. R2D2
    Sep 11, 2017 at 10:33 pm

    In my view this whole economy is good thing is fake and bogus. One of the main drivers of this good economy are supposed to be technology companies. I’ve been having interviews for the last 2 weeks; you can’t imagine how difficult companies are in these interviews. I just finished a technical phone interviews with one of these big companies. In half an hour, I have written a 110 line programs to solve a brain teaser; and at the end the guy starts asking about stupid little things about the program; writing such a difficult program in a short time should satisfy anyone. If I could write programs like this in an interview in any of the prior periods of boom such as 2000, even in 2008, and up to about 2 years ago, I would have been hired on the spot.

    The point is that if companies were really looking for employees, and unemployment rate was really this bogus 4%, they could not afford to be picky to the extreme. if we discount the theory that Indians are trying to keep the jobs only for their own cousins (and thus failing anyone else in interviews), then the only other explanation would be that for each job there is at least 100 other candidates, and thus they can afford to be picky to the extreme. A company that is making money can’t afford to waste 4 month to just find a candidate.

    Even in 2008 if I wrote programs like this in interviews, I would have been celebrated as some hotshot that should be hired right away.

    It is all bogus, and as an extension the stock market is bogus.

  25. KiwiinCanada
    Sep 12, 2017 at 1:02 am

    The little guy dosn’t appear to be in this market as a speculator. There is no volatility typical of a speculative market only a grind up. The buy backs appear to be the key drivers and there appears to be no immediate threat to this trend. The Fed is probably not going to invert the yield curve by raising short rates much. They are more likely to reduce their balance sheet in this environment.

    Perhaps corporate credit quality becomes a concern or the leading tech stocks fundamentals deteriorate. Perhaps an economic downturn possibly caused by an exogeneous shock will end the party. There is also the probability stock buybacks will become less and less intrinsically attractive as the trend plays out.

  26. Willy2
    Sep 12, 2017 at 1:09 am

    – There three signs the average investor is (very) bullish. the 2 year, the 1 year and the 3 month rates have risen (and peaked ???) to a post 2008 high.

  27. Mark B
    Sep 12, 2017 at 10:29 am

    Wolf,
    In an earlier comment you mentioned Google pressuring you to make changes to something they didn’t like. You may have already discussed that in an earlier posting that I missed. If so I apologize in advance. If you haven’t already done so, it would be interesting to hear what happened.

    Only if you’re comfortable sharing, of course.

    • Sep 12, 2017 at 11:02 am

      You didn’t miss it. I was going to write an article about it, and I received the permission of a commenter involved in it to mention them in the article. But it’s a very complex topic, and part of it was beyond my pay grade, and I might not have been the best guy to shed light on it in the appropriate manner, and so I didn’t write about it.

      But it taught me something: This is a new era, and the Googles of the world run it.

      In China, the government runs the show, and they have advanced this to the nth degree (Great Firewall, etc.). In the US, certain corporations run the show, and this is just the beginning.

      • d
        Sep 12, 2017 at 12:12 pm

        One of the objectives of 9/11 was to make America much more fascist and intrusive just like the states/groups that oppose it are.

        They scudded quiet well.

        Once a State starts on the “the Population i steh enemy and must be controlled/Watched” route.

        a roll back does not occur with out serious population revolt.

        What happen in Russia post 1991 was not a Population revolt it was a collapse of an oppressive and intrusive state replaced by a much more oppressive and intrusive but subtler model.

        In such a state the censorship of self interest by corporations must be tolerated as their cooperation is needed by the State.

        Gmail and other Alphabet services are ” free “, there are many catches. As we know there is no such thing as a ” free lunch “.

        If the service big Tech service entities in Repressive States don’t cooperate with the CCP Bureaus, FSB, DPRK, and iranian Revolutionary Guards, they dont get to stay in operation.

        In the US and west this is not as blatant but does Occur. GSM was encrypted and secure. Now its only so to a certain level of expense With out a warrant. The Tech industry is doing nothing to stop this.

        In many western States the Police and security have been paying companies operated by former Employees to illegal intercept for decades. They cant do this and not allow corporate to censor in their own interest.

        The telephone was never secure, as there was always a, big mouth, nosey, busybody or state listener at the exchange.

        Modern communications are no different.

        Most news entities have never been about “informing”people or simply “reporting the facts” “trial by media” is as old as the Media. Just as is media state propaganda.

        Ther was teh other day a good article on politico detailing the issues the FBI is having controlling twitter bots and trolls operated by the russian and chinese troll farms.

        These entities are in fact FIS elements teh current laws hamstring the FBI in countering them, not for much longer.

        Google just like WIKI is for simple low level searches and Basic information the editing of Wiki to show anti Israel, and pro ccp Russian muslim bias, is horrific.

        The Globalised Vampire corporates are not intrested in Truth they are intrested in what sells what they want to sell.

        Simple example BIG Tobbaco, and Monsantoo have both used disinformation and information suppression to sell their dangerous products long before there was an internet.

        The WHO Wiki page states Glysophate “may” be a carcinogenic. To prevent attacks by monsanto attack lawers as a Glysophate causes cancer, birth defects, and more, but it is to expensive to write that and keep it there.

        Your page views are growing as is your following. Hence the “Visit” from Google. It actually shows you are getting somewhere.Expect more unless you pull back on several fronts which will be a “Sad Day”

        In due course you will get “Visits” from the “Financial industry” as they just like Google and all the other globalized vampire Corporates dont like thing’s that show their activities or effect their profitability negatively.

        The BBC was for decades a reasonable news entity. Today it is garbage. Just like corbyn it effectively campaigned for Brexit. There was and is nothing impartial about the BBC coverage of the whole brexit issue.

        The truth is out there. For the average guy. It is getting way harder to find.

        Which is why this Site/Blog is so good to have found.

        • d
          Sep 12, 2017 at 12:40 pm

          Googles “Do no evil”.

          Went out the window when profits and personal profits from stock-price relationships moved in.

          Face book.

          So mant comment sections you can not post unless you post through “facebook” which also post you through the NSA, FBI, CIA, DEA, DHS, And many other entities that legally and illegally monitor facebook. Both US and Non US.

          I dont have any “Social Media” and never will.

          Have your communications illegally intercepted the selective used against you in a failed act of persecution by the state gives you a whole new attitude to “Electronic Communication”.

          As people have learn the hard way.

          Turning the phone/Device off does not turn it “OFF”.

          Tap and Pay smart pay cards, never turn off “Unless” you use a folder punch to make a hole in them in the correct place. They contain a small, flexible, rechargeable Battery.

          With the correct device, you can hack and follow them all simply by walking down the street, through the mall, Store, with the device in your pocket.

          People in the west have no idea how much surveillance they are under if “they ” want to know.

          The GOP has a “Data Base” it was revealed (after orange idiot stole the election), that, contains SS #, D Licence #, vote and donation history, tax paid, asset value, sexual orientation, ETc ETc Etc, That covers most voters in the US.

          If they have that, what do the Tech outfits have??? Let alone the state. Most of it skimmed from Google, Amazon, Ebay, Facebook, Yahoo, Etc. Then matched.

          None of them are that secure so what do the Oppressor states and their Stae funded “criminals ” (AKA Hostile Non State Intelligence services (like Wiki Leaks)) that have hacked them have??.

          Many popups that have a close button have a dual fi=unction in that close button it installs things as it closes unless you close it thorough task manager or the equivalent.

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